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Patent-Eligible Subject Matter in the United States

The United States Patent statute provides that utility patents may be granted for the invention of

any new and useful process, machine, manufacture or composition of matter or any new useful improvement thereof.1

This broad statutory definition of subject matter has enabled the United States to take a lead in widening the scope of subject matter for which patent protection may be obtained, for example with respect to medical treatments, living things and “non-technical” inventions.

However, three recent decisions of the United States Supreme Court have emphasized that not everything is patent-eligible and a fourth decision dealing with this issue is expected before the end of June 2014. The decided cases are:

In all of these cases, claimed subject matter was held to lack patent eligibility.

The case on which a decision is still awaited is Alice Construction Pty. Ltd. v.CLS Bank International which relates to a computer-based financial system. This case was argued before the Supreme Court on March 31, 2014.

In the meantime, the USPTO has issued official guidance to examiners as to how to deal with the issue of patent eligibility when it arises during prosecution.

Two issues run through the most recent cases:

1) whether the claimed subject matter preempts use of a principle, noting that routine ancillary features of a claim cannot be used to render eligible that which would otherwise be ineligible, although there is some debate about what makes a feature routine and

2) recognizing that natural laws and products of nature are not themselves patentable, what exactly constitutes a natural law or product of nature.

A fairly early example (1854) of what cannot validly be patented under the first heading is found in one of the claims of Morse’s patent in O’Reilly v. Morse5. The claim was to

“the use of the motive power of electric or galvanic current … for making or printing intelligible characters … at any distance.”

The Supreme Court held the claim to be invalid as not being directed to any statutorily-defined class of protectable subject matter but merely to a “principle”.

In 1888, the Supreme Court distinguished its decision in Morse in Dolbear v. American Bell Telephone Company6 where the claim in question was to

A method … of transmitting sounds telegraphically … by causing electrical undulations, similar in form to the vibrations of the air accompanying said vocal or other sounds …

The Court noted that in Morse’s case, the claim had been to the use of magnetism as motive power without regard to the particular process with which it was connected in the patent, whereas in Bell’s case the claim was restricted to a defined process.

On the question of what constitutes a product of nature, in American Fruit Growers Inc. v. Brodgex Co7, the Supreme Court, in holding unpatentable fruit whose skin had been treated to resist mold, held that even though such products were not found in nature, they did not possess a new or distinct quality or property compared to the naturally-occurring article.

In Funk Bros Seed Co. v. Kalo Inoculant Co.8, the Supreme Court held that a mixture of nitrogen-fixing bacteria of different species for inoculating seeds of leguminous plant was not patentable because each species acts in the same way in the mixture as it had always acted and mixing them effected no change from what they did naturally. The mixture was new in that it selected only bacteria that did not inhibit each other. However, the Supreme Court did not see this as being enough to render the mixture patent eligible when there was no change made to any of the bacteria. The opinion of the court was given by Douglas J, who commented “He who discovers a hitherto unknown phenomenon of nature has no claim to a monopoly of it which the law recognizes. If there is to be invention from such a discovery, it must come from the application of the law of nature to a new and useful end.”

In Diamond v. Chakrabarty9 the Supreme Court upheld the patent eligibility of a bacterium genetically modified to digest oil, but noted that although the statutory language was broad, it did not encompass “laws of nature, physical phenomena, and abstract ideas.” However, the Chakrabarty bacterium was new “with markedly different characteristics from any found in nature” and so qualified for patent protection.

2. Abstract Ideas

For many years after the Chakrabarty decision, primary emphasis on interpreting the statute was placed on the word “any”. In the mid 2000’s, however, emphasis started to turn to consideration of the four statutory classes of patent-eligible subject matter set out. In 1998 in the case of State Street Bank v. Signature Financial10, discussed below, the Court of Appeals for the Federal Circuit, referring to the three categories of non-patent-eligible subject discussed in Chakrabarty held that business methods did not necessarily fall into any of these categories and so there was no prohibition of the grant of patents for business methods if they otherwise met the requirements for patentability. This opened the floodgates to large numbers of patent applications for a wide variety of methods and products and resulted in increasing concerns as to whether there were any bounds on what might be patentable. As reaction developed, there was initially an increased focus on whether what was being claimed fell within one of the four statutory classes and what the bounds of each of these classes might be.

In 2010, in Bilski v Kappos11, the Court affirmed a decision of the Federal Circuit that had, in finding the invention in question ineligible for patent protection, held that to be eligible for patent protection a method had to employ a particular machine or effect a transformation of something to a different state or thing.12 In a five-to-four decision, the Supreme Court held that this reasoning was insufficient.13 The test that had been used by the Federal Circuit was, the Supreme Court held, a useful but not exclusive test. The Supreme Court recognized that its earlier case law had pointed to use of a “machine-or-transformation” test as being useful and reiterated that in many cases this could be used. However, Justice Kennedy in his opinion for the majority in Bilski noted:

The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age – for example inventions grounded in physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining patentability of inventions in the Information Age.14

The Court considered whether business methods should be patentable and concluded that since Congress had already provided a specific defense that could only be used with respect to patents for business methods, Congress had in effect already approved of such patents and it was not for the courts to outlaw them, although he believed that

If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change. In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools.

Clearly Kennedy J did not wish to open the lock gates to a flood tide of business method patents such as followed the Federal Circuit’s State Street decision. However, after reiterating that abstract ideas were not patent-eligible, the Supreme Court gave little guidance as to where something ceased to be abstract, apart from indicating that broad claims were more likely to be abstract than narrow ones and so less likely to preempt a basic idea.15 He did, however point to a series of earlier cases where the Supreme Court had addressed the patent eligibility of computer implemented inventions as providing guidance16, even though the invention in Bilski was not one involving the use of a computer.

As noted above, the issue of what is an “abstract idea” is likely to be addressed again in the decision in Alice v. CLS Bank.

In CLS Bank International v Alice Corporation Pty. Ltd.17 a divided panel of the Federal Circuit agreed that mere implementation on a computer of an otherwise ineligible abstract idea will not render the asserted “invention” patent-eligible although where the addition of a machine imposes a meaningful limit on the scope of the claims and “plays a significant part in permitting the claimed method to be performed, rather than functioning solely as an obvious mechanism for permitting a solution to be achieved more quickly, i.e., through the utilization of a computer for performing calculations,” that machine limitation renders the method patent-eligible.

The panel also agreed that while the method, system, and media claims fall within different statutory categories, the form of the claim in this case does not change the patent eligibility analysis under § 101. The majority, over a strong dissent by Judge Prosed, also held that district courts have great discretion to control the conduct of proceedings before them, including the order of presentation of issues and evidence and the sequence of events proscribed by the Federal Rules and leading up to judgment. Thus they could in effect decide novelty issues first. Prosed J felt that this flew in the face of the Supreme Court’s directive in Mayo v. Prometheus to apply the patent eligibility subject matter test with more vigor. She also for similar reasons dissented from the majority’s holding

that when—after taking all of the claim recitations into consideration—it is not manifestly evident that a claim is directed to a patent-ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101.

The Federal Circuit agreed to review the panel decision in CLS v. Alice en banc and it had been hoped that this would bring clarity to this area of the law. It did not. In Alice Construction Pty. Ltd. v.CLS Bank International18,the Federal Circuit issuedfive separate opinions and a “reflection” by Chief Judge Rader. There was little agreement except that a majority found all claims invalid for various reasons.19 Alice requested certiorari on September 3, 2013, and the case was argued before the Supreme Court on March 31, 2014.

3. Natural Law

In Mayo v. Prometheus20 , after the Federal Circuit had twice held the claimed invention, a diagnostic method, patent-eligible as meeting the machine-or-transformation test, the Supreme Court in a unanimous decision authored by Breyer J. reversed the decision of the Federal Circuit and held that it was not patent-eligible because it was directed simply to a natural law combined with conventional steps. The claims were directed to a method of optimizing therapeutic efficacy of a drug by administering the drug and determining the level of a specific metabolite in a patient’s blood, the claim going on to state that particular levels of the impurity “indicates a need” to either increase or decrease the dosage of the drug. However, the claim did not include any step wherein such change in dosage was carried out.

The Court regarded the relationships between concentrations of certain metabolites in the blood and the likelihood that a dosage of a drug being administered would be ineffective or cause harm to be a natural law and contrasted the present invention with an invention that involved utilization of a natural law such as had been found eligible for protection in Diamond v. Diehr discussed above. The Court did, however, comment that it did not intend its decision to prevent patenting of new pharmaceuticals or new methods of using known pharmaceuticals. One of the Court’s main concerns was that a patent of this type might preclude further research, explaining that without limitations on patents related to natural laws, the grant of patents in this field would create a considerable danger that they would tie up tools and inhibit future innovation premised on them.21

4. Products of Nature

Finally in June 2013, in Association forMolecular Pathology v. Myriad Genetics Inc.22, the Supreme Court held that claims to isolated DNA having the same sequence as naturally-occurring DNA were not patent-eligible because such DNA was not something “markedly different from any found in nature”. On the other hand cDNA (that is DNA from which introns had been removed) was different from what was found in nature and so patent-eligible.23 The Court noted that Myriad had made a medical breakthrough in identifying the location and hence the “typical” structure of the BRCA1 and BRCA2 genes, but “ground-breaking, innovative or even brilliant discovery does not by itself satisfy the §101 inquiry.” Discovery and invention are not the same. Rejecting the majority view in the Federal Circuit that the breaking of covalent bonds in order to isolate a fragment of DNA rendered it a nonnaturally occurring molecule, the Supreme Court noted “Myriad’s claims are simply not expressed in terms of chemical composition, nor do they rely in any way on the chemical changes which result from the isolation of a particular section of DNA. Instead, the claims understandably focus on the genetic information encoded in the BRCA 1 and BRCA2 genes.

The Supreme Court also rejected the view that because the USPTO had granted gene patents for many years, their validity should now be upheld. Congress had never endorsed this policy, and the U.S. government disagreed with it24. Insofar as there were concerns about reliance on the PTO’s prior determinations, these were better resolved by Congress.25

5. The View of the USPTO

Following the decision in Mayo, the USPTO issued a guidance to examiners on the patent eligibility of claims to diagnostic methods as follows:

Prior to Mayo, the office did not treat … relationships [between metabolite concentrations and dosages of drugs administered] -which come about as a result of an administration of a man-made drug as laws of nature for the purposes of the judicial exceptions. This aspect of Mayo changes that practice.26

More generally, the PTO has taken to heart the Supreme Court’s admonition that claims should not preempt all uses of a natural law or abstract idea.

On July 29, 2010, the USPTO published in the Federal Register new “Interim Guidance for Determining Subject Matter Eligibility for Process Claims in view of Bilski v. Kappos”.27

What seems to be a significant comment in the guidance is the following:

…the fact that the steps of a claim might occur in the “real world” does not necessarily save it from a section 101 rejection. Thus, in Bilski claims were said to be drawn to an abstract idea despite the fact that they included steps drawn to initiating transactions. The “abstractness” is in the sense that there are no limitations as to the mechanisms for entering into the transactions.

The Guidance goes on to set out four factors to be considered by examiners in evaluating whether a claim is directed to an abstract idea lacking patent eligibility:

A. Whether the method involves or is executed by a particular machine or apparatus. It is noted that in applying this factor examiner should consider the degree to which the machine in the claim can be specifically identified. We have noted a tendency of examiners to suggest that claims that involve use of computers to state that the computer is “specifically programmed” to perform the defined method.

B. Whether performance of the claimed method results in or otherwise involves a transformation of a particular article. In applying this factor examiners are to consider whether what is being transformed is an object or substance (which weighs towards patent eligibility) or a concept such as a contractual obligation or mental judgment (which weighs against the transformation being patent-eligible).

C. Whether the performance of the claimed method involves an application of a law of nature, even in the absence of a particular machine, apparatus or transformation. If it does then it is more likely that the method is patent-eligible than if it does not, as long as the claim does not attempt to encompass some specific effect of that law or every mode of accomplishing that effect, such as Samuel Morse’s famous claim that was found by the Supreme Court to be invalid in 1854: “use of electromagnetism for transmitting signals at a distance”.

D. Whether a general concept is involved in executing steps of the method, which would tend to weigh against the method being eligible for patent protection. The Guidance lists a number of general concepts which the USPTO believes may call into question whether a claimed method is patent-eligible. These include: basic economic practices or theories (e.g., hedging, insurance, financial transactions, marketing), basic legal theories (e.g., contracts, dispute resolution, rules of law), mathematical concepts (e.g., algorithms, special relations, geometry), mental activity (e.g., forming a judgment, observation, evaluation or opinion), interpersonal interactions or relationships (e.g., conversing, dating), teaching concepts, human behavior (e.g., exercising, wearing clothing, following rules or instructions) and instructing how business should be conducted. The Guidance points out that no one factor should be determinative as to whether what is being claimed is eligible for patent protection and that the claim as a whole has to be evaluated to see whether it is ‘drawn to an abstract idea such that the claim would effectively grant a monopoly over an abstract idea”. If the examiner concludes that this is the case, the claim should be rejected as being prima facie ineligible for patent protection and the applicant given the opportunity to explain why what is being claimed is not simply an abstract idea.

Under the Patent Office’s 2010 interim guidance, in addition to methods that meet the machine-or-transformation test that had been used before the Supreme Court’s decision, claims that involve application of a law of nature may also receive relatively favorable treatment, but that it will still be difficult to obtain protection for claims covering “general concepts” which do not fit into these categories.

Furthermore, following the fact that even though there was no precedential holding in the Federal Circuit’s decision in Alice v. CLS the majority of the judges opined that simply stating that an invention was computer-implemented did not bring it within the realm of patent eligibility, the PTO now normally requires that the other factors noted above require consideration.

The Bilski and Mayo decisions do not give a great deal of assistance in trying to determine what is an abstract idea or a natural law. One thing that is clear, however, is that the Supreme Court is concerned about the risk that granting patents that encompass too much may cut off later developments. In his guidance to examiners immediately following the Mayo decision, the USPTO’s Assistant Commissioner for Patent Examination Policy summarized the situation as follows:

The Court made it clear that to transform an unpatentable law of nature into a patent eligible application of such a law, one must do more than simply state the law of nature while adding the words “apply it”. Essentially, appending conventional steps, specified at a high level of generality, to laws of nature, natural phenomena and abstract ideas cannot make these laws, phenomena and ideas patent eligible.28

Most recently in a very controversial guidance memorandum issued on March 4, 2014, Deputy Commissioner Hirshfeld29 makes the following points on examination in the light of the Supreme Court’s decisions in the Mayo and Myriad cases:

1. A prime issue is “does the claim as a whole recite something significantly different than (sic) the judicial exceptions (abstract ideas, laws of nature/natural principles, natural phenomena and natural products)?

This is what is becoming to be known as the “preemption analysis”.

2. “Significant difference” can be shown in multiple ways such as:

a) The claim includes elements or steps that add something significantly more to the judicial exception;

b) The claim includes features or steps that demonstrate that the claimed subject matter is markedly different from that which exists in nature.

3. Such differences can be attained by, for example:

Including “meaningful limits” on claim scope;

Adding elements/steps that are more than nominally, insignificantly or tangentially related to the judicial exception;

Complying with “the machine-or-transformation” test; or

Adding a limitation that is more than well-understood, purely conventional or routine in the field.

In the case of claiming products, the question is whether the product claimed is materially different from what is found in nature; it does not matter that the means for making the change were routine.

The guidance includes a number of examples. Some of the more interesting are

Example B which indicates that a purified natural product unlikely to be patent-eligible because it has no marked difference from natural product, but once structurally modified, difference in properties not required.

Example D which restates that mixtures of natural products such as those claimed in Funk v. Kalo discussed in the introduction to this paper are unlikely to be patent-eligible.

Example E which applies the holding in Funk v. Kalo to a pair of primers (DNA) and finds no marked difference that simply pairing these primers does not make marked difference in the product. However, a method of amplifying DNA using the pair of primers would likely be patent-eligible if specific “meaningful” process steps are included in the method.

Example F deals with a diagnostic method. The claim in the hypothetical included the following steps:

Obtain blood;

Determine whether particular protein misfolded by specific steps;

Based on this determination diagnose disease suffered by the patient from whom the blood was taken.

Such a claim is indicated to be likely but only because of specific steps used to determine misfolding.

6. Conclusion

Despite the general recognition of the importance of the patent system in the United States, we are still grappling with the challenges resulting from inventions in new areas which pose challenges as to where the correct balance lies between providing incentives for innovation and avoiding the risks of stifling further inventions by overly-broad protection for those who come first. Ultimately, as prior art develops, the scope of patent protection is naturally limited by the requirement that an invention is new and unobvious. Such natural limits on scope are, however, less useful in the early days of a new industry and it is often patents granted in such early days that come before the courts and present the issues with which we are still grappling.

1 35 USC 101. This definition is essentially unchanged since 1793.

295 USPQ2d 1001 (S.Ct. 2010).

3101 USPQ2d 1061 (S. Ct 2012).

4106 USPQ2d 1972.

556 U. S. 112 (1854). Other claims of the patent that were more specific were held to be patentable.

6126 U. S. 1 (1888).

7283 US 1 (1931).

8333 US 127, 76 USPQ 280 (S. Ct 1948).

9 447 U.S. 303, 206 USPQ 193 (1980).

10149 F.3d.1368, 47 USPQ2d 1596 (Fed. Cir. 1998).

1195 USPQ2d 1001 (S. Ct. 2010). The invention was for a method of hedging risk based on statistical analysis of historical data to fix prices for long term contracts, for example between a supplier and user of coal, such as an electricity generator company.

12The Federal Circuit had decided sua sponte to decide the case en banc to address growing concerns about the state of the law as applied to patent eligibility of business-related inventions.

13The minority would simply have held that all business methods lacked eligibility for patent protection.

14He had previously noted that amici briefs filed with the Supreme Court had shown that there were concerns that exclusive use of the machine-or-transformation test would lead to uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression and the manipulation of digital signals.

15In CLS Bank Int’l v. Alice Const. Pty. Ltd., 99 USPQ2d 1898 (2011) the D.C. district court made the observation that when looking at the question of what was an abstract idea, the Supreme Court had concentrated not on the usefulness or practicality of claims but on whether claims are directed to a fundamental concept as demonstrated at least in part by their preemptive force.

16Gottschalk v.Benson 409 US 63, 175 USPQ 673 (S. Ct. 1973) where the Supreme Court unanimously found claims to a computer program whose sole object is to generate numerical values according to an algorithm is unpatentable; Parker v. Flook,437 US 584, 198 USPQ 193 (1978) where in a majority of six-to-three, the Supreme Court held that a computer program is unpatentable if all it does is generate numerical values even if the values bring about a physical result and Diamond v. Diehr 450 US 175, 209 USPQ 1 (1981) where the Supreme Court held (5-4) patentable a computerized method for controlling a process for curing rubber that calculated when to open the mold in which cure was taking place by application of the known Arrhenius equation to data obtained from temperature sensors within the mold.

17103 USPQ2d 1297 (Fed. Cir. 2012).

18106 USPQ2d 1696 (Fed. Cir. en banc 2013).

19The key issues that caused the wide variety of opinions in CLS Bank were: 1) what was required of the “other elements” of the claim referred to in Mayo that would convert a non-patent-eligible abstract idea of natural law into a patent-eligible application of that idea or law, particularly when the method was computer-implemented and 2) whether there was a difference in patent eligibility between system claims and method claims, in other words, was writing a claim as a system rather than a method simply an application of the draftsman’s art, or did it result in a meaningful step away from the abstract because something tangible was required.

There was, however, agreement on some issues:

1) the statutory presumption of validity applies to the question of patent eligibility and the burden is on the party questioning patent eligibility to bring forward clear and convincing evidence on the issue;

2) patent eligibility is not a threshold issue to be determined before considering other issues but is simply one of the issues to be determined when considering patentability;

3) a method claim cannot be converted from an ineligible abstract idea into something that is patent-eligible simply by requiring that it be implemented on a computer;

4) in general claims to computer-readable media carrying software to perform a method stand or fall with the methods they carry.

On the first issue of disagreement, Lourie J, with whom Dak, Prosed, Rana and Wallach JJ agreed, found the method claims ineligible for patent protection by focusing on the issue of whether limitations in the claim avoid the risk of preemption of an abstract idea. To do this in his view one must first identify the abstract idea at risk of being preempted and then determine whether the extra steps in a method claim that limit the claim over its preempting a natural law or abstract idea as needing to relate to “a product of human ingenuity”. A requirement for computer implementation of a method could be a meaningful limitation if use of the computer was essential to being able to carry out the method or improved computer technology was involved, but this is not the case here.

Rader CJ, with whom Linn, Moore, and O’Malley JJ agreed, took exception to Judge Lourie’s reference to a need for human ingenuity in the additional steps required and took the view that what the Supreme Court meant by its statement that claims should not just take a natural law and say “apply it” was that the additional steps go beyond what would necessarily be done by anyone wanting to use the natural law or abstract idea. A requirement to use a computer could be sufficient to achieve this, even if it just speeded up the method. In the present case, however, the requirement for use of a computer in the method did not achieve this.

On the question of the system claims, most of the judges took the view that if these were simply rephrased versions of the method claim, the requirement for the presence of hardware did not change the outcome (although three of these, Newman, Linn and O’Malley JJ; would also have found the method claims patent-eligible), Rader CJ, with whom Moore J agreed, saw Alappat as being good law (Lourie J wondered whether it still was in view of subsequent Supreme Court decisions) and that as such a computer programmed for a particular purpose was likely to be patent-eligible. Since there was a five-to-five split on the question of whether the system claims were patent-eligible, no precedent was set.

21In its decision under review, the Federal Circuit had been at pains to point out

The inventive nature of the claimed methods stems not from preemption of all use of these natural processes, but from the application of a natural phenomenon in a series of steps comprising particular methods of treatment. Other drugs might be administered to optimize therapeutic efficacy of the claimed treatment.

The Supreme Court did not agree.

22106 USPQ2d 1972.

23In a footnote, the Court noted that cDNA might be created naturally when a retrovirus invades a cell but took the view that

The possibility that an unusual and rare phenomenon might randomly create a molecule similar to one created synthetically through human ingenuity does not render a composition of matter nonpatentable (emphasis in the original).

24The U.S. Government filed an amicus brief disagreeing with the policy of the Patent Office in granting patents for isolated genes.

25The Supreme Court’s reasoning in Myriad raises questions as to whether products isolated from nature in other ways, for example pharmaceutically-active chemicals isolated from plants, such as Taxol®, are patent-eligible subject matter. It may, however, be possible to take the view that once isolated, such compounds are capable of functions that are different from those that they perform in nature and that unlike the genes in Myriad, it is human ingenuity that discovered properties that were unconnected with the function they perform in plants and which causes them to perform their new functions. We will, however, have to wait for further court decisions before the answer becomes clear.

26Memorandum of Andrew Hirshfeld available on USPTO web-site at:

http://www.uspto.gov/patents/law/exam/2012_interim_guidance.pdf

2775 Fed. Reg. 43922.

28Memorandum of Andrew Hirshfeld dated March 21, 2012, available on USPTO web-site at

http://www.uspto.gov/patents/law/exam/mayo_prelim_guidance.pdf

29Memorandum of Andrew Hirshfeld dated March 4, 2014, available on USPTO web-site at